LEXICON PHARMACEUTICALS, INC. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Overview We are a biopharmaceutical company with a mission of pioneering medicines that transform patients’ lives. We are devoting most of our resources to the research and development of our most advanced drug candidates and the commercialization of our approved drug, INPEFA ® (sotagliflozin): • We are developing pilavapadin (LX 9211), an orally-delivered small molecule drug candidate, as a treatment for neuropathic pain. We have completed three Phase 2 clinical trials ev aluating the safety and tolerability of pilavapadin and its effects on diabetic peripheral neuropathic pain, or DPNP, and neuropathic pain. We have reported results from our Phase 2b clinical trial of pilavapadin in DPNP, which demonstrated clear evidence of effect at the 10 mg dose, and have received Fast Track designation from the U.S. Food and Drug Administration, or FDA, for development of pilavapadin in that indication. We have also reported positive results from a Phase 2a clinical trial of pilavapadin in DPNP and results from a separate Phase 2a clinical trial of pilavapadin in post-herpetic neuralgia which also demonstrated evidence of effect. • We are developing LX9851, an orally-delivered small molecule drug candidate, as a treatment for obesity and associated cardiometabolic disorders. We have granted Novo Nordisk an exclusive, worldwide, royalty-bearing license to develop, manufacture and commercialize LX9851 and are conducting preclinical development of LX9851 in preparation for the filing of an investigational new drug application, or IND, with the FDA and commencement of clinical development by Novo Nordisk. • We continue to make INPEFA (sotagliflozin) commercially available in the United States. INPEFA is our orally-delivered small molecule drug approved to reduce the risk of cardiovascular death, hospitalization for heart failure, and urgent heart failure visits in adults with heart failure or type 2 diabetes mellitus, chronic kidney disease, or CKD, and other cardiovascular risk factors. We are also developing sotagliflozin as a treatment for hypertrophic cardiomyopathy, or HCM, and are conducting a Phase 3 clinical trial of sotagliflozin in that indication. We are separately pursuing regulatory approval of ZYNQUISTA ® (sotagliflozin) as a treatment for type 1 diabetes. The FDA issued a complete response letter regarding our New Drug Application, or NDA, for sotagliflozin in type 1 diabetes in March 2019 and an additional complete response letter in December 2024 regarding our NDA for sotagliflozin as an adjunct to insulin therapy for glycemic control in adults with type 1 diabetes and CKD. At our request, the FDA has issued a public Notice of Opportunity for Hearing, or NOOH, on whether there are grounds for denying approval of our NDA and those proceedings are ongoing. • We are conducting preclinical research and development of compounds from a number of additional drug programs originating from our internal drug discovery efforts. Pilavapadin originated from our collaborative neuroscience drug discovery efforts with Bristol-Myers Squibb and LX9851, sotagliflozin and compounds from a number of additional drug programs originated from our own internal drug discovery efforts. Our efforts were driven by a systematic, target biology-driven approach in which we used gene knockout technologies and an integrated platform of advanced medical technologies to systematically study the physiological and behavioral functions of almost 5,000 genes in mice and assessed the utility of the proteins encoded by the corresponding human genes as potential drug targets. We have identified and validated in living animals, or in vivo, more than 100 targets with promising profiles for drug discovery. We have worked both independently and through collaborations and strategic alliances with third parties to capitalize on our drug target discoveries and research and development programs. We seek to retain exclusive or co-exclusive rights to the benefits of certain research and development programs by developing and commercializing drug candidates from those programs internally, particularly in the United States for indications treated by specialist physicians. We seek to collaborate with other pharmaceutical and biotechnology companies with respect to the research, development and commercialization of certain of our drug candidates, particularly with respect to commercialization in territories outside the United States or commercialization in the United States for indications treated by primary care physicians, or when the collaboration may otherwise provide us with access to expertise and resources that we do not possess internally or are complementary to our own. We have derived substantially all of our revenues from strategic collaborations and other research and development collaborations and technology licenses, as well as from commercial sales of our approved drug products. To date, we have generated a substantial portion of our revenues from a limited number of sources. 17 Our operating results and, in particular, our ability to generate additional revenues are dependent on many factors, including the success of our ongoing research and development efforts and the ability to obtain necessary regulatory approvals of the drug candidates which are the subject of such efforts; our success in establishing new collaborations and licenses and our receipt of milestones, royalties and other payments under such arrangements; and general and industry-specific economic conditions which may affect research, development and commercialization expenditures. Our ability to secure future revenue-generating agreements will depend upon our ability to address the needs of our potential future collaborators and licensees, and to negotiate agreements that we believe are in our long-term best interests. We may determine, as we have with sotagliflozin in the United States and Europe, that our interests are better served by retaining rights to our discoveries and advancing our therapeutic programs to a later stage, which could limit our near-term revenues and increase expenses. Because of these and other factors, our operating results have fluctuated in the past and are likely to do so in the future, and we do not believe that period-to-period comparisons of our operating results are a good indication of our future performance. Since our inception, we have incurred significant losses and, as of September 30, 2025, we had an accumulated deficit of approximately $2.0 billion. Our losses have resulted principally from costs incurred in research and development, selling, general and administrative costs associated with our operations, and non-cash stock-based compensation expenses associated with stock options and restricted stock units granted to employees and consultants. Research and development expenses consist primarily of salaries and related personnel costs, external research and material costs related to our nonclinical efforts and clinical trials, and other expenses related to our drug discovery and development programs. Selling, general and administrative expenses consist primarily of salaries and related expenses for executive, sales and marketing, and administrative personnel, professional fees and other corporate expenses, including information technology, facilities costs and general legal activities. We expect to continue to incur significant research and development costs in connection with the continuing research and development of our drug candidates. As a result, we will need to generate significantly higher revenues to achieve profitability. Critical Accounting Policies The preparation of financial statements in conformity with generally accepted accounting principles requires us to make judgments, estimates and assumptions in the preparation of our condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates. We believe there have been no significant changes in our critical accounting policies as discussed in our Annual Report on Form 10-K for the year ended December 31, 2024. Results of Operations Revenues Revenues were approximately $14.2 million and $1.8 million, respectively, for the three months ended September 30, 2025 and 2024 and $44.3 million and $4.5 million, respectively, for the nine months ended September 30, 2025 and 2024. Revenues for the three months and nine months ended September 30, 2025 included $13.2 million and $40.7 million in licensing revenue recognized from the Novo Nordisk licensing agreement. See Note 5, Collaborations and Strategic Alliances , for further information. Total revenues for each of the periods presented also include product revenues from sales of INPEFA. 18 Cost of Sales Cost of sales during the three and nine months ended September 30, 2025 and 2024 were less than $0.3 million in each period and primarily consist of third-party manufacturing costs and freight associated with sales of INPEFA. Prior to receiving regulatory approval of INPEFA in May 2023, we had completed or begun the manufacturing of certain INPEFA raw materials. These raw materials were either received at “zero-cost” to us in conjunction with a terminated agreement in 2019 or recorded as research and development expense. Based on our expectations for future manufacturing costs, we estimate these amounts totaled approximately $39.0 million. We began capitalizing inventory manufactured subsequent to regulatory approval of INPEFA as the related costs were expected to be recoverable through the commercialization of the product. At September 30, 2025, substantially all of the “zero-cost” INPEFA raw materials remains available to us. However, the time period over which this inventory is consumed will depend on a number of factors, including the amount of future INPEFA sales, use of this inventory to satisfy manufacturing and supply agreements associated with strategic alliances (for further information, see our Annual Report on Form 10-K for the year ended December 31, 2024) or in clinical development or other research activities, production lead times, and/or the ability to utilize inventory prior to its expiration date. Any future sales of INPEFA will utilize this “zero-cost” inventory and will result in a lower average per unit cost of materials during that period. We estimate our cost of goods sold as a percentage of net product revenue will be less than 10% subsequent to the utilization of all of the remaining “zero-cost” inventory. Research and Development Expenses Research and development expenses and dollar and percentage changes as compared to the corresponding periods in the prior year are as follows (dollar amounts are presented in millions): Three Months Ended September 30, Nine Months Ended September 30, 2025 2024 2025 2024 Total research and development expense $ 18.8 $ 25.8 $ 49.8 $ 57.8 Dollar decrease $ (7.0) $ (8.0) Percentage decrease (27) % (14) % Research and development expenses consist primarily of third-party services principally related to preclinical and clinical development activities, salaries and other personnel-related expenses, facility and equipment costs, stock-based compensation expense and other costs, each of which are described below. • Third-party services – Third-party services relate principally to our clinical trial and related development activities, such as preclinical and clinical studies and contract manufacturing. Overall, third-party services for the three months ended September 30, 2025 decreased 39% to $11.5 million from $18.7 million, and for the nine months ended September 30, 2025 decreased 22% to $28.3 million from $36.2 million as compared to the corresponding periods in 2024 primarily driven by lower clinical external research expense associated with our current drug candidates. • Personnel – Salaries, bonuses, employee benefits, payroll taxes, recruiting and relocation costs are included in personnel costs. Personnel costs for the three months ended September 30, 2025 increased to $4.3 million from $4.2 million, and for the nine months ended September 30, 2025 decreased to $12.5 million from $12.8 million as compared to the corresponding periods in 2024. • Stock-based compensation – Stock-based compensation expenses for the three months ended September 30, 2025 and 2024 were $1.8 million and $1.5 million and for the nine months ended September 30, 2025 and 2024 were $5.0 million and $4.7 million. • Facilities, equipment, and other – Facilities, equipment, and other costs relate primarily to rent, insurance, travel and training, and software licensing costs. Facilities, equipment, and other costs for the three months ended September 30, 2025 decreased 16% to $1.2 million from $1.4 million, and for the nine months ended September 30, 2025 decreased 3% to $4.0 million from $4.1 million as compared to the corresponding periods in 2024. 19 Selling, General and Administrative Expenses Selling, general and administrative expenses and dollar and percentage changes as compared to the corresponding periods in the prior year are as follows (dollar amounts are presented in millions): Three Months Ended September 30, Nine Months Ended September 30, 2025 2024 2025 2024 Total selling, general and administrative expense $ 7.6 $ 39.6 $28.6 $110.8 Dollar decrease $ (32.0) $(82.2) Percentage decrease (81) % (74)% Selling, general and administrative expenses consist primarily of personnel costs to support of our research and development and commercialization activities, professional and consulting fees, stock-based compensation expense, and facilities, equipment and other costs, each of which are described further below. • Personnel – Salaries, bonuses, employee benefits, payroll taxes, recruiting and relocation costs are included in personnel costs. Personnel costs for the three months ended September 30, 2025 decreased 88% to $2.2 million from $19.0 million, and for the nine months ended September 30, 2025 decreased 79% to $10.9 million from $52.6 million as compared to the corresponding periods in 2024, primarily due to lower employee salaries and benefit costs as a result of decreased headcount from our restructuring in late 2024. • Professional and consulting fees – Professional and consulting fees for the three months ended September 30, 2025 decreased 85% to $2.5 million from $15.9 million, and for the nine months ended September 30, 2025 decreased 78% to $9.0 million from $40.1 million as compared to the corresponding periods in 2024, primarily due to lower marketing costs in conjunction with our restructuring in late 2024. • Stock-based compensation – Stock-based compensation expenses for the three months ended September 30, 2025 increased 20% to $1.6 million from $1.3 million, and for the nine months ended September 30, 2025 decreased 35% to $4.7 million from $7.2 million as compared to the corresponding periods in 2024, due to decreased headcount from our reduction in the field force in late 2024. • Facilities, equipment, and other – Facilities, equipment, and other costs relate primarily to rent, insurance, travel and training, and software licensing costs. Facilities, equipment, and other costs for the three months ended September 30, 2025 decreased 62% to $1.3 million from $3.4 million, and for the nine months ended September 30, 2025 decreased 62% to $4.0 million from $10.9 million as compared to the corresponding periods in 2024. The decrease was primarily due to lower travel as a result of our restructuring in late 2024. Interest and Other Expense Interest and Other Expense. Interest on the outstanding debt principal, amortization/accretion of debt issuance cost and discount and other related items are included in interest and other expense. Interest and other expense was $2.2 million and $4.6 million, respectively, during the three months ended September 30, 2025 and 2024, and $6.3 million and $11.7 million during the nine months ended September 30, 2025 and 2024 reflecting the repayment of $45 million to Oxford, our lenders, in April 2025. Interest Income and Other Interest Income and Other. Interest earned on cash, cash equivalents and short-term investments is included in interest income and other. Interest income and other decreased to $1.6 million from $3.4 million during the three months ended September 30, 2025 and decreased to $5.6 million from $9.5 million during the nine months ended September 30, 2025 from the corresponding period in 2024. Net Loss and Net Loss per Common Share Net loss and Net loss per Common Share. Net loss was $12.8 million, or $0.04 per diluted share, in the three months ended September 30, 2025 as compared to a net loss of $64.8 million, or $0.18 net loss per share, in the corresponding period in 2024. Net loss was $34.8 million, or $0.10 net loss per share in the nine months ended September 30, 2025, as compared to a net loss of $166.6 million, or $0.54 net loss per share in the corresponding period in 2024. 20 Our quarterly operating results have fluctuated in the past and are likely to do so in the future, and we believe that quarter-to-quarter comparisons of our operating results are not a good indication of our future performance. Liquidity and Capital Resources We have financed our operations from inception primarily through sales of common and preferred stock, contract and milestone payments we received under our collaborations and strategic licenses, target validation, database subscription and technology license agreements, government grants and contracts, and financing under debt, lease and other project financing arrangements, as well as from commercial sales of our approved drug products. As of September 30, 2025 and December 31, 2024, we had $145.0 million and $238.0 million in cash, cash equivalents, restricted cash and short-term investments, respectively. We used cash of $50.6 million from operations in the nine months ended September 30, 2025, primarily reflective of the net loss for the period of $34.8 million (which included total non-cash stock-based compensation expense of $9.7 million) and working capital changes. Investing activities provided cash of $108.2 million in the nine months ended September 30, 2025, primarily due to net maturities of investments. Financing activities used cash of $45.6 million, primarily from repayment of debt borrowings. We have entered into an Open Market Sale Agreement SM with Jefferies LLC pursuant to which we may offer and sell shares of our common stock having an aggregate sales price of up to $75 million from time to time through Jefferies as sales agent. As of September 30, 2025, the full amount is still available for issuance under the agreement. Financing Obligations. In March 2022, we entered into a loan and security agreement with Oxford that originally provided up to $150 million in borrowing capacity, available in five tranches, under which $100 million has been funded under the first three tranches. Availability of the fourth $25 million tranche expired on April 15, 2025. The fifth $25 million tranche is available for draw at our option, subject to Oxford’s consent, at any time prior to the expiration of the 60-month interest-only payment period with a current amortization date of May 1, 2027. In March 2025, we entered into a seventh amendment to our loan and security agreement (the “Seventh Amendment”) with Oxford (a) providing for a prepayment to the lenders of $45 million, which occurred in April 2025, and certain additional contingent future prepayments totaling $8 million, (b) modifying the amortization date and repayment amortization schedule under the loans under certain circumstances, (c) modifying the financial covenant relating to minimum cash and (d) eliminating the previous financial covenant relating to net sales of INPEFA ® (sotagliflozin), as well as certain other terms. In April 2025, we repaid $45 million (including pro-rata final payment exit fees) to Oxford on a pro-rata basis across each loan tranche pursuant to the terms of the Seventh Amendment. Additional payments of $20.2 million, $30.2 million, and $11.6 million, including debt principal and final exit fee payments (equal to 7% of the remaining amount funded under the Oxford Term Loans), will be due during the fiscal years ended December 31, 2027, December 31, 2028 and December 31, 2029, respectively, with respect to all borrowed loan tranches as of September 30, 2025. As a result of the Seventh Amendment, the current amortization date of May 1, 2027 and the final maturity date of March 1, 2029 are subject to potential acceleration to December 1, 2026 and November 1, 2027, respectively, dependent upon the occurrence of certain future events. Additionally, Lexicon may prepay the Oxford Term Loans in whole at its option at any time subject to prepayment fees which have declined to 1 percent on a portion of the outstanding amounts of each loan tranche. Among other items, the loan and security agreement includes a financial covenant which requires us to maintain a minimum balance of unrestricted cash, cash equivalents. short-term investments, and restricted cash, inclusive of a required minimum amount of $29 million to be maintained in a blocked account, in an amount equal to not less than the greater of (a) fifty percent (50%) of the outstanding principal amount of the Oxford Term Loans and (b) the required minimum amount of $29 million. As of September 30, 2025, the Company maintained $29 million in the blocked account. As of September 30, 2025, the Company was in compliance with its debt covenants. Collaborations and Strategic Alliances. In March 2025, we entered into an exclusive license agreement with Novo Nordisk A/S for the worldwide development, manufacture and commercialization of LX9851, our preclinical drug candidate for obesity and associated cardiometabolic disorders, pursuant to which we received an upfront payment of $45 million. For additional information on our exclusive license agreement with Novo Nordisk, refer to Note 5, Collaborations and Strategic Alliances. 21 In October 2024, we entered into an exclusive license agreement with Viatris for the development and commercialization of sotagliflozin in all markets outside of the United States and Europe pursuant to which we received an upfront payment of $25 million. For additional information on our exclusive license agreement with Viatris, please refer to our Annual Report on Form 10-K for the year ended December 31, 2024. Other commitments. Upon the regulatory approval of sotagliflozin for the treatment of type 1 diabetes in a major market, we will be required to make certain royalty payments, totaling $4.5 million, in three equal annual installments of $1.5 million. Under our drug discovery alliance with Bristol-Myers Squibb, we will be required to make a milestone payment of $5 million upon dosing of the first patient in a Phase 3 clinical trial of pilavapadin. For a further discussion of our commitments and contingencies see Note 7 of the Notes to Condensed Consolidated Financial Statements . Outlook . Our future capital requirements will be substantial and will depend on many factors, including the success of our ongoing research and development efforts and the ability to obtain necessary regulatory approvals of the drug candidates which are the subject of such efforts; our success in establishing new collaborations and licenses and our receipt of milestones, royalties and other payments under such arrangements; the amount and timing of our research, development and commercialization expenditures; the resources we devote to commercializing, developing and supporting our products and other factors. Our capital requirements will also be affected by any expenditures we make in connection with license agreements and acquisitions of and investments in complementary technologies and businesses. We expect to continue to devote substantial capital resources to the research and development of our drug candidates and for other general corporate activities. We believe that our current unrestricted cash and investment balances and revenues we expect to derive from strategic and other collaborations and other sources will be sufficient to fund our currently planned operations for at least the next 12 months from the date of this report. In future periods, if cash on hand or generated by operations is insufficient to satisfy our liquidity requirements, we will need to obtain additional liquidity through future strategic and other collaborations or sell additional equity or debt securities or obtain additional credit arrangements. Additional financing may not be available on terms acceptable to us or at all, and the sale of additional equity or convertible debt securities may result in additional dilution to our stockholders. If we are unable to obtain adequate financing when needed, we may have to delay or reduce the scope of our commercialization efforts or one or more of our clinical trials and other research and development programs. Disclosure about Market Risk We are exposed to limited market and credit risk on our cash equivalents which have maturities of three months or less at the time of purchase. We had approximately $145.0 million in cash and cash equivalents, restricted cash and short-term investments as of September 30, 2025. We maintain a short-term investment portfolio which consists of U.S. Treasury bills and corporate debt securities that mature three to 12 months from the time of purchase, which we believe are subject to limited market and credit risk. We currently do not hedge interest rate exposure or hold any derivative financial instruments in our investment portfolio. We are subject to interest rate sensitivity on our outstanding Oxford Term Loans which bear interest at a floating rate equal to the 1-month CME Term SOFR rate. Interest on the Oxford Term Loans is payable in cash monthly and the term loans are fully matured by March 2029, unless earlier repaid in accordance with their terms. We have operated primarily in the United States and substantially all sales to date have been made in U.S. dollars. Accordingly, we have not had any material exposure to foreign currency rate fluctuations. Item 3. Quantitative and Qualitative Disclosures About Market Risk See “Disclosure about Market Risk” under “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” for quantitative and qualitative disclosures about market risk.